Archive for September, 2012

(I originally wrote this as a guest post for the management consulting and strategic communications firm Beyond the Arc. You should check them out for a lot of great information on customer experience, strategy, analytics and social business. I will be speaking on a panel onHow to Monetize Social Mediawith their CEO Steve Ramirez, along with Citibank’s Frank Eliason, cited below, at the BAI Retail Delivery Conference on October 9.)

I am sometimes asked to give social media advice to others in financial services.

“I wouldn’t necessarily consider myself a social media expert,” I once told a counsel-seeker.

Transparency: Good News and Bad News

Participating in social media increases the transparency of a company’s operations and people, which is a positive thing for most customers. The bad news is that poor practices and behaviors are highlighted as well. If you have a dumb policy or poorly trained people or a bad product, that will become readily apparent even sooner through social media. Maritz Research found that 51% of consumers who complain via social media expect to be contacted, but that 85% of those outcries are not addressed at all.

I sometimes air complaints and compliments via Twitter, partially as a social experiment. The range of results is stunning. I had a sleepless night in a Westin hotel due to a loud banging noise caused by a problem with air in their pipes. I tweeted my frustration and was contacted within hours by both the hotel management and their Starwood Preferred Guest loyalty program, and each offered me apologies and compensation for my inconvenience. My frustration was quelled and I remain a loyal SPG guest.

Quite the opposite experience I had with a major retailer. I was not having any luck reaching someone on their 800 number with the authority to reverse an express shipping charge to correct their own mistake, so I tagged them on Twitter. The next day I received a tweet apologizing and asking me to call in with a “reference number”, but when I called in, I was right back at the low level where I had begun. The “reference number” was meaningless and no one on the phone had any more information or any more authority than on my original call. I try to shop elsewhere.

What is Your Business Strategy?

What are today’s key business challenges and how can social media help?

Acquiring new customers

How can you use social media to differentiate in a crowded business and gain market share over the competition?

Monitor social networks for disgruntled customers of competitors. Respond better than their own providers.

Be there when prospects are looking for the services you provide. The CEO of a major social network tweeted that he was trying to reach someone from my last bank about a mortgage. We were just starting to monitor Twitter and our social media team sent the message to me, so I responded on his terms– on Twitter.

Retaining existing customers

Half of bank customers are considered “ripe for change”, and most change because of changing life circumstances.

Monitor social networks for disgruntled customers of your own firm. A problem solved promptly and well can create more loyalty than a customer who experiences no problem at all.

Make your customers aware of current relevant offers or promotions. Providing offers only to acquire new customers is a turn-off to your existing customers.

Make sure you are providing your customers a way to engage in two-way (or multi-way) conversations. Social media is not just a soapbox from which to hawk your wares.

Expanding relationships with existing customers

In the consumer banking business, as many as 80% of customer relationships are unprofitable. Those statistics may not be accurate in your industry, but some variation on the Pareto Principle (the “80/20 rule”) tends to exist in every business– a small number of customers typically provides profitability to subsidize the vast majority.

Make more of your relationships profitable with relevant offers for additional or complementary products.

Pay attention to changes in life circumstances that may call for additional services. (Weddings, babies, moving, etc.).

Leverage your platform for mass customization.

The View from the Bridge

No matter what business you’re in, it’s likely you are dealing with these basic issues. A social media presence won’t make them go away, and poor social media practices will make them worse. Focus your business strategy on solving relevant customer problems, and leverage social media as an enabler. There are plenty of social media experts who can design just the right digital campaign to reach just the right markets with just the right messages –but first, ask yourself a key question (and one that we have discussed here before): Are you repainting the walls, when you have a serious crack in the foundation?

New York welcomed the Finovate road show to town with weather was so perfect that it faded into the background like a perfect picture frame. For the most part, the show graced the perfect frame beautifully, with attractive and engaging interfaces being the rule. So much so that Aite analyst and Snarketing 2.0 blogger Ron Shevlin mused about the attendees being “SedUIced” by interfaces over business impact.

It’s a shame that intermittent WiFi and cell coverage inside the hall occasionally defaced the exhibition with digital graffiti. If I hadn’t known that Javits Convention Center has distanced itself from its early reputation as a patronage mill for the mob, I would have thought that a few of the exhibitors had spurned pre-show shakedowns behind the dumpsters. (“It would be a real shame if that pretty app of yours somehow couldn’t connect to the network right in the middle of your demo…”)

Making the Complex Simple

A wise CFO I once worked with proclaimed that were two kinds of people in the world, those that make the complex simple, and those that make the simple complex.

There weren’t too many in the latter camp, the Finovate team screens and coaches demonstrators well. Still, a few seemed to have slapped technology onto a convoluted process and/or addressed an irrelevant problem; or as someone tweeted– solved problems no one has with technology no one wants. There were (only) a few moments that felt like SharkTank, and I secretly wished for the schadenfreude of a venture capitalist throwing a cold glass of reality on the smoldering embers of a bad idea.

But the majority of the demos addressed relevant problems and simplified the complex with good design, and most appropriately recognized mobile as a significant front in the fintech wars.

All of the Best of Show winners (in alphabetic order):

Credit Sesame: Mint and LendingTree had a very good looking baby. Credit-centric PFM with recommendations for managing debt.

Dashlaneaddressed the sometimes laborious process of filling out multiple fields for e-commerce checkout with a single solution for any vendor on any platform.

Dynamicsshowed a payment card with a built-in switch that enables customers to choose multiple payment sources. (Parenthetically, I “invented” this a few years ago in an ideation session. I also “invented” BetaMax when I was nine. And flying suits.)

eTorohad an impressive demo of a pretty product that I happen to categorically reject. Their CopyTrader technology enables stock traders to harness the “wisdom” of the crowds in their own gambling, er, trading. It was a definite crowd favorite, but I have seen the prequels “Internet Stocks” (1999) and “Real Estate” (2007). They were both gripping thrillers with horrible endings.

MoneyDesktoprepeated as a back to back winner. Their patent-pending “bubble budgets” provide a nice graphical representation of budget items and they continue to refine their ecosystem with synching iPad, smartphone and desktop apps.

PayTapoffered a slick and apparently effective solution for paying shared bills via multiple payment sources and social networks. They also pitched it as a way to make it easier when you are asked to help pay someone else’s bill. I’m looking for the blacklist feature on that one…

ShopKeep POSenables merchants to run a store from an iPad. Another great example of making the complex simple, with a great interface.

All in all, another great show full of smart people and innovative ideas, and another reminder that we are still in the early stages of disruptive technology in financial services.

Like this:

Concern about those who have been left behind in receiving financial services (“the unbanked” and “the underbanked” ) have been popular topics of conversation amongst bankers and regulators over the past few years.

An important thread of these conversations has been the fact that in many cases, it is the customers who are leaving the traditional financial service providers behind, not the other way around.

I spend most of my time working with the “overbanked”– affluent families who have no shortage of financial services options, and as I have written previously, they too can find a variety of services to borrow, hold, invest and move money without the need for a traditional bank.

Yesterday’s Wall Street Journal reported on an affluent family who has “…no need, desire or want to go to a regular bank,”

I am excited to spend the next two days peering into the future of FinTech as I watch and hear 60 companies demo their wares at Finovate. This TechSpeak to English Dictionary from Francisco Dao may be helpful for some attendees (and some presenters). Enjoy…

This is as encouraging to me personally (“the average age of founders of technology companies is a surprisingly high 39 – with twice as many over-50 executives as those under 29 years old.)”, as it is generally (“The United States might be on the cusp of an entrepreneurship boom—not in spite of an aging population but because of it.”).

But I especially like the described “four character traits of a successful CEO – Sensemaking, Relating, Visioning, Inventing.” I couldn’t agree more, and I have seen an abundance of these traits in the CEOs I admire the most (and a dearth in those who leaving me scratching my head).

In the article, I mentioned that most of the notable traction to date has been in the payments space. One might not think that this “dumb pipe” portion of banks’ business models– moving dollars and data from Point A to Point B– would provide such fertile ground for disruptive innovation, but consider the impact and potential of players such as Finovate alums Dwolla and Simple, as well as Square, PayPal, and others.

I also noted in the article that innovative specialty lenders and crowdsourcing platforms are breaching what had long been banks’ deepest moat– the ability to monetize their balance sheets. Most simply defined, banks’ primary function is to be a financial intermediary. Besides moving money from one place to the other, they hold excess capital when it is not needed for investment, and lend it out when it is; providing liquidity to all sorts of macro and micro markets along the way.

Oligopolists acting like oligopolists

Even though there are over 7,000 banks (plus a similar number of credit unions) in the U.S. alone, the industry has long operated as an oligopoly. For the most part, it continues to act that way despite disruptive threats from all around. After all, their primary product is the ultimate undifferentiated commodity, money. Bank A’s money isn’t better designed, sturdier or more portable than Bank B’s.

Parenthetically, oligopolists acting like oligopolists has a lot to do with the reason most consumers hold banks in just slightly higher esteem than they do the U.S. Congress. Banks integrated vertically and horizontally, they bought weaker competitors, they raised prices, they made up new fees, they cut costs and maximized profits for shareholders with scant regard to other stakeholders, like, you know, their customers.

Predictably, smart players from outside the industry have visions for better ways of doing business.

As frightening as any of these threats should be to any entrenched bankers who are paying attention, the ongoing march of innovation should be scaring them right out of their moire suspenders. Innovators are moving beyond solving the algorithmic problems of the industry and beginning to tackle more dynamic and heuristic areas, such as wealth management.

I continue to reference a recent American Banker article cited a KPMG survey that said 9 out of 10 banks were considering a major overhaul of their strategy, and that 40% said that wealth management was essential to growing revenue in the future.

Wealth management is an attractive business, and if done right, the business can also be a key differentiator, but it requires the ability to develop, manage and leverage intellectual capital beyond the commodity that is the bulk of many banks’ current business models.